Corporation Tax on Chargeable Gains, often referred to as Corporate Gains Tax, is a critical aspect of corporate taxation in the UK. Businesses that dispose of chargeable assets such as property, shares, or equipment may be liable to pay tax on the profits made from these disposals. Understanding how corporate gains are taxed can help businesses plan effectively and minimize tax liabilities within legal frameworks.
What Are Chargeable Gains?
A chargeable gain arises when a company disposes of an asset for more than it originally cost, leading to a profit. The most common chargeable assets include:
- Land and property (excluding the main business premises in some cases)
- Shares and securities
- Equipment and machinery (unless exempt under capital allowances)
- Intellectual property and goodwill
How Is Corporate Gains Tax Calculated?
The tax on chargeable gains is calculated as part of Corporation Tax rather than a separate tax. The steps to determine the gain include:
- Determine the Disposal Value – The sale price or market value if the asset is gifted or transferred below market value.
- Deduct the Original Cost – This includes the purchase price and any related costs such as legal fees or improvement costs.
- Apply Any Reliefs – Companies may be eligible for reliefs like Rollover Relief or Indexation Allowance (for gains before 2018).
- Calculate Corporation Tax – The net gain is added to the company’s taxable profits and taxed at the prevailing Corporation Tax rate:
- 25% for profits over £250,000
- 19% for small profits below £50,000
- Marginal relief applies between £50,000 and £250,000
Reliefs and Allowances
Several reliefs can reduce the tax burden on corporate gains, including:
- Rollover Relief: Defers tax if the proceeds are reinvested in qualifying business assets.
- Holdover Relief: Applies to certain gifted assets, postponing the gain.
- Private Residence Relief: If a company disposes of a property that was used as a main residence, it may be eligible for relief, though this primarily applies to individuals rather than companies. Several reliefs can reduce the tax burden on corporate gains, including:
- Substantial Shareholding Exemption (SSE): Exempts gains from the sale of qualifying shares in trading companies.
- Capital Losses: Companies can offset capital losses against chargeable gains to reduce taxable amounts.
Reporting and Payment
Chargeable gains are reported in the company’s Corporation Tax return (CT600). The tax is due along with the usual Corporation Tax payment deadline—nine months and one day after the end of the company’s accounting period.
How to Minimise Corporation Tax on Chargeable Gains?
To legally reduce tax liabilities, companies should:
- Make use of available reliefs and exemptions
- Plan asset disposals strategically
- Keep detailed records of asset costs and enhancements
- Consider reinvesting gains to defer tax payments
Final Thoughts
Corporation Tax on Chargeable Gains is an essential consideration for UK businesses disposing of assets. Proper planning and understanding of reliefs can significantly impact the tax burden. Consulting with a tax advisor can help businesses make informed decisions and optimize their tax position.